Cutting out coffee breaks now could considerably boost your retirement fund

Published on in Banking News by

A new study has shown that by simply cutting out a coffee a day you can boost your pension pot significantly.

bank accountsAccording to new figures from Friends Life, by saving as little as £2.50 every day it could result in an extra £187,000 being added to your pension.

Managing Director Corporate Benefits at Friends Life Colin Williams said: “The recent cold and dreary weather means that resolutions to do more exercise and to eat more healthily are likely to have taken a back seat for many of us in the past few weeks, especially when they involve forgoing a ‘treat’ that helps to get you through the working day.”

The fact is that by leaving out a small purchase each day and putting that money aside you can make a real difference to your pension.

Cutting out a daily coffee or foregoing a slice of cake are simple and easy things to do and can easily be tied in with an overall attempt at a healthier lifestyle or diet. Likewise, choosing a simple sandwich instead of an expensive baguette may seem unlikely to have a long-term impact, but it actually can.

Small daily savings can result in an annuity of £3,120 a year based on today’s terms. Here’s an example of how it works:

If someone aged 20 saves £2.50 a day for 20 working days a month and pays it in to their company pension that’s £50. Adding back in basic rate tax takes this to £62.50. A matching employer pension contribution adds up to a monthly contribution of £125.

Saving at this rate for a period of 10 years would result in a total contribution of £15,000. The fund value could then be worth £187,000 at age 65, which would purchase an annuity of £3,120 a year based on today’s terms.

“We’ve all been told that small changes can make a big difference, and when the reality is worth £187,000 – or an extra £3,000 a year in retirement – it really does seem worth making that extra effort,” said Mr Williams.

If you plan on making cutbacks, remember to stash all the extra money in a good bank account to make your hard-earned cash go further.

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